Options Intelligence Report: Technology Select Sector SPDR Fund (XLK), Energizer Holdings, Inc. (ENR) & iShares Dow Jones U.S. Real Estate Index ETF (IYR)
Enormous Prints In Put Options On Tech. Select Sector SPDR Fund
XLK ñ Technology Select Sector SPDR Fund
One big options market participant traded a total of 524,600 put options on the technology SPDR ETF this afternoon. It looks like the party responsible for the massive transactions rolled a previously established debit put spread in the December contract forward to the longer-dated March 2011 contract. Shares of the XLK, an exchange-traded fund that mirrors the performance of the Technology Select Sector of the S&P 500 Index, are down slightly by 0.20% to stand at $24.19 as of 2:15 pm in New York.
The XLK jumped to the top of our ëmost active by options volumeí scanner after the 112,300-lot December $23/$20 put spread was sold for a net $0.31 per contract. This spread appears to have been initially purchased for a net premium of $0.68 each back on October 7, 2010, when the price of the underlying fund was trading around $23.14. Today, the XLK-options player sold the massive spread in order to purchase an even larger one at the same strike prices in the March 2011 contract.
The new put position involved the purchase of 150,000 lots at the March 2011 $23 strike for a premium of $0.96 each, and the sale of the same number of puts at the lower March $2011 $20 strike at a premium of $0.31 apiece. In isolation, the net cost of buying the longer-dated put spread amounts to $0.65 per contract and yields downside protection for the investor should shares of the XLK trade below the breakeven price of $22.35 by March expiration.
Enormous trades such as these tend to be tied to stock. Perhaps this trader is augmenting the size of the put spread because he has increased his exposure to the technology sector. Around the same time the puts were bring traded, some 733,000 shares of the underlying were purchased for $24.12 each. We note, however, that at this time there is no way for us to determine whether these shares were tied to the spread or not.
ENR ñ Energizer Holdings, Inc.
The manufacturer of batteries, portable lighting devices and personal care products appeared on our ëhot by options volumeí market scanner late in the trading session after one investor dabbled in December contract put options. Energizerís shares are down 0.15% to arrive at $73.78 with 40 minutes remaining before the final bell. The pessimistic player initiated a ratio put spread, buying 1,500 in-the-money puts at the December $75 strike for a premium of $4.00 each, and selling 3,000 puts at the lower December $70 strike at a premium of $1.80 apiece. The net cost of the transaction amounts to $0.40 per contract.
Profits are available to the trader if Energizerís shares trade below the effective breakeven price of $74.60 through December expiration. Maximum potential profits of $4.60 per contract pad the investorís wallet if ENRís shares drop 5.1% from the current price of $73.78 to settle at $70.00 at expiration day. The trader is short twice as many put options at the lower strike price and therefore may lose money in the event that the battery makerís shares plunge far more than expected in the next couple of months.
Losses start to accumulate if shares in Energizer Holdings, Inc. fall 11.35% from the current price to trade below the lower breakeven point at $65.40 ahead of expiration in December. Options implied volatility on the stock is currently up 6.8% to stand at 31.98% as of 3:25 pm. Energizer is scheduled to report earnings for the fourth quarter ahead of the opening bell on November 2, 2010.
IYR ñ iShares Dow Jones U.S. Real Estate Index ETF
Shares of the IYR, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the Dow Jones U.S. Real Estate Index ñ an Index that measures the performance of the real estate sector of the U.S. equity market, fell 1.6% this afternoon to $54.94. An options trader expecting the price of the underlying shares to continue to fall through December expiration initiated a large-volume put spread on the ETF today.
The investor purchased 13,000 puts at the December $54 strike at a premium of $1.67 per contract, and sold the same number of puts at the lower December $50 strike for a premium of $0.63 each. Net premium paid to initiate the spread amounts to $1.04 per contract. The put player stands ready to make money if shares of the IYR fall another 3.60% to breach the effective breakeven price of $52.96 by expiration day. Maximum potential profits of $2.96 are available to the investor if shares plunge 9.00% lower to trade below $50.00 by December expiration. Shares of the fund last traded below $50.00 back on August 27, 2010.
Note: The material presented in this commentary is providedforinformational purposes only and is based upon information that isconsidered to be reliable. However, neither Interactive Brokers LLC norits affiliates warrant its completeness, accuracy or adequacy and itshould not be relied upon as such. Neither IB nor its affiliates areresponsible for any errors or omissions or for results obtained fromthe use of this information. Past performance is not necessarilyindicative of future results.
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